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A New Bill May Require Co-Ops to Explain Applicant Rejections

keys in lock

Currently, co-op boards have the authority to reject applicants without providing any explanation. While co-ops are required to follow the Federal Fair Housing Act and New York City Human Rights Law, which prohibit discrimination based on race, color, national origin, sex, familial status, disability, religion, gender, age, sexual orientation, uniformed service, alienage or citizenship status, or whether children will be residing with the applicant (see here for federal law and here for NYC local law), some state lawmakers contend that the current laws nonetheless facilitate housing discrimination.

In practice, it is challenging for an applicant to prove rejection based on one of the above characteristics since co-op boards are not required to disclose their reasoning until an applicant makes a discrimination claim. In our experience, rejection rates by co-op boards in NYC hover around three to five percent, with some commonly theorized reasons being an applicant’s inadequate finances, background or employment history, errors in the co-op application, lousy board interview, or intended use as Pied-a-Terre.

A Potential Solution

New York Senator Brian Kavanagh recently introduced legislation (Senate Bill S2874) that would require a uniform process for boards considering applications to purchase co-ops to “ensure that the process of purchasing cooperative housing is fair, transparent, and does the utmost to protect against illegal discrimination,” per the bill’s language. Similar bills have been introduced and subsequently rejected in recent years, but the progressive make-up of the New York legislature has some experts believing that there is a strong likelihood that this time is different.

The proposed bill would amend the not-for-profit corporation law and the business corporation law with four main provisions that co-op boards should be aware of. First, it requires co-ops to establish uniform processes for evaluating applicants. Upon request, written notice of this process must be given to purchasers, sellers, and agents to avoid procedural issues often used to reject applicants. Second, the bill requires boards to acknowledge receipt of the application and whether the application fully satisfies requirements, and if not, how the application is incomplete, within 21 days of receipt. Third, the bill requires co-ops to provide notice of acceptance or rejection within 90 days of receiving a completed application. Lastly, co-op boards must provide written notice stating the reasoning for rejection to any applicant denied. If this is not done within the 90-day period, consent to the sale will automatically be granted.

The Effect

Importantly, there is no substantive change to the reasons why co-op boards can reject applicants. However, we see two main impacts this bill may have on the application process if enacted into law.

The first is a restriction on the ability to delay the application process discussed above. Co-op boards have a strict 90-day period after a completed application is submitted to render a decision, and the threat of automatic acceptance will force boards to render decisions in a timely manner.

The second impact is the requirement to provide a reason, in writing, for denying an application, which may force co-op boards to be more intentional. Although rejections can still be based on the same reasonings as are permitted now, such as financial standing or a poor interview, the reason for rejection will be documented at the time of rejection instead of only upon filing a discrimination claim. Although some are worried that this bill may increase lawsuits against co-op boards by those who are rejected, there are tips boards should keep in mind that may help avoid this result.

Tips for Co-op and Condo Boards

  • Educate board members on what is and is not a permissible reason to reject an applicant. It is important to articulate a specific, permissible reason when rejecting an applicant, so there is no room to speculate that discrimination was involved.
  • Clearly articulate the application process to potential applicants so there is no confusion on when the 21-day and 90-day time periods begin.
  • Stay up to date with litigation surrounding the law. As with any new law, if this were to pass there would be litigation involving issues such as how in-depth the reason given for rejection has to be, and keeping up to date with litigation involving these issues will inform your co-op board on what is and is not permissible.

We will closely pay attention to this bill’s progression and keep you posted on any developments.

-BFK

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Bergstein Flynn & Knowlton PLLC

At Bergstein Flynn & Knowlton, we pride ourselves on being a different kind of law firm. We are not just your attorneys, we are your partners.
The following two tabs change content below.

Bergstein Flynn & Knowlton PLLC

At Bergstein Flynn & Knowlton, we pride ourselves on being a different kind of law firm. We are not just your attorneys, we are your partners.